Oil prices fell yesterday as the dollar surged following strong US jobs numbers, though compliance with output cuts by OPEC and rising global demand kept much of the early-year oil rally in place.

An increasingly correlated trade between oil, stocks, bonds and the dollar has amplified swings in the markets.

US West Texas Intermediate (WTI) crude fell 46 cents, or 0.7 per cent, to $65.33 as of 1:19pm EST (18:19 GMT) and has lost 1.3 per cent for the week.

Brent, the global benchmark, was down $1.02, or 1.5 per cent, to $68.62 a barrel.

Oil fell as the dollar rose after US jobs growth surged in January and wages rose, recording their largest annual gain in more than eight-and-a-half years.

“Oil prices have come under pressure because of rising oil production in the US, together with a marginal rebound in the US dollar index. The price is currently in overbought territory, which has also promoted profit taking," said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

The once-strong connection, where oil rises when the dollar falls and vice versa, ebbed between 2014 and 2016 during a three-year supply glut.

With supply tightening, the relationship has reasserted itself. Since the beginning of the year, oil and the US dollar index have had a correlation of -0.86, with -1 being a perfectly inverse relationship.

Crude still has support because of output cuts by large producers and strong demand.

"The OPEC/non-OPEC production and US tight oil have justifiably been a focus this year. Yet demand has quietly underpinned the tightening of the market over the past year," said Jon Rigby, UBS analyst, in a note.

Global oil demand rose by 1.6 million bpd, or about 1.5 per cent, last year and UBS said it should grow by another 1.3 million this year.

January production from the Organisation of the Petroleum Exporting Countries rose from an eight-month low, according to a Reuters survey.

Russian data showed strong compliance with output cuts, even as production hit 10.95 million bpd.

The cuts have offset gains in US crude production. US output surpassed 10 million bpd in November for the first time since 1970, the Energy Information Administration said this week. For the week to February 2, Baker Hughes said drillers added six rigs to bring the overall count to 765, the second straight week of gains.

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